Ethereum’s recent supply surge has raised concerns among crypto enthusiasts as over $47 million worth of Ether (ETH) tokens were added to circulation within the last 30 days. The development comes as a surprise to many Ethereum proponents who expected the transition to proof-of-stake (PoS) last year to make ETH a deflationary asset.
Factors Contributing to the Supply Surge
- Decline in transaction activity on the Ethereum network
- Reduced NFT trades
- Decreased decentralized finance (DeFi) activity
The surge in supply can be attributed to these factors, which have resulted in less ETH being burned. Ethereum’s fee-burning mechanism means that higher network activity leads to increased gas prices, resulting in more ETH being permanently removed from circulation. However, the recent drop in gas fees, with an average network transaction costing just $0.24, has reduced the amount of ETH burned, contributing to the supply surge.
Developer Perspectives on Ethereum’s Inflationary Trend
“It’s ‘insignificant’ in the grand scheme of things.”
While some in the crypto community have expressed concern about Ethereum’s inflationary trend, Ethereum core developers appear unfazed. Micah Zoltu downplayed the significance of the supply surge, stating that it is “insignificant” in the grand scheme of things. Similarly, Danno Ferrin pointed out that Ethereum’s short-term inflation remains lower than other chains and the broader economy.
Comparing Ethereum with Other Chains and the Economy
As a comparison, the issuance of new BTC on the Bitcoin network is halved every four years, and the BTC annual inflation rate currently stands at about 1.8%. The inflation rate (CPI) in the general economy in the US stood at 3.7% annually as of last month.
Regardless of these viewpoints, it’s clear that the shift in supply dynamics raises questions about Ethereum’s long-term financial health and whether it can fulfill the expectations of becoming “ultrasound money,” a term used by Ethereum enthusiasts to describe a deflationary currency.
